Wheat futures
slumped to their lowest in eight months as heavy snow improved prospects for drought-hit
US crops, adding to pressure on prices from a rising dollar and retreating
external markets.

Commodities as a
whole found headway difficult on Thursday, as fears that the US central bank
may withdraw ultra-easy monetary policy, coupled with a weak reading for a French
economic indicator, curtailed hopes for reviving growth.

The decline, echoed in share markets, was exacerbated by a
further rise in the dollar, to
five-month highs, underpinned by the idea of former US monetary policy, and
making dollar-denominated assets, such as many commodities, less appealing to
buyers in other currencies.

The CRB commodities index stood 1.1% lower in late deals.

'Major precipitation
event'

However, the decline was particularly notable in wheat, after
snows eased concerns for dryness in areas including the central and southern
Plains, where drought sent winter wheat into dormancy in its worst condition on
record.

Dan Cekander, director of grain market analysis at broker Newedge,
said: "We are definitely having quite some precipitation in the hard red winter
wheat area," the likes of Kansas and Oklahoma, which has borne the brunt of the
drought.

"This is a major precipitation event."

According to weather service WxRisk.com, snowfall over the
next few days "will rangefrom 4 to 12
inches, but 12-18 inches are possible overwestern andcentralKansas".

MDA's Don Keeney said that this week's heavy snow across the
central Plains "should help to ease drought conditions there once it melts, while
heavy rains in the South East should improve conditions there as well".

'Rain makes grain
mentality'

The improving crop hopes sent grain prices lower, with Jerry
Stowell at Country Futures, noting that "a rainmakes grain mentality is pressuring corn
and wheat today".

Indeed, the snows outweighed further evidence of America's
revival as a wheat export power, with the US Department of Agriculture
reporting that an unknown importer had purchased 110,000 tonnes of US soft red
winter wheat, the type traded in Chicago.

This on top of firm weekly export data revealed last week,
and Wednesday's victory in a wheat tender by Egypt, the top importing country.

Furthermore, bulls had on their side a further downgrade by
Argentina's agriculture ministry of 700,000 tonnes to 9.4m tonnes in its
estimate for the domestic wheat harvest.

"Final yields fell short of initial expectations, due to
crop diseases, excessive rainfall in August, several heat waves in November
during the grain-filling stage, hail, and strong winds during the harvest," the
ministry said.

But the overpowering selling pressure, little helped by a
USDA report pegging Indian exports at a record in 2013-14, sent Chicago wheat for
March down to $7.19 ¼ a bushel, the contract's lowest since June, before
recovering some ground in late deals.

The lot closed at $7.21 ¼ a bushel, a loss of 2.3% on the
day, with the better-traded May contract tumbling 2.9% t0 $7.24 a bushel.

The declines dragged European contracts lower too, despite data
showing the EU cleared a healthy 589,000 tonnes of the grain for export this
week, taking the total so far in 2012-13 to 12.7m tonnes.

Paris wheat for May lost early gains to close down 0.1% at
E238.25 a tonne, while its London peer closed down 0.5% at £207.50 a tonne.

'Corn is struggling'

The precipitation made itself felt on corn too, in improving
crop prospects especially western Corn Belt states where last year's drought
has persisted.

Furthermore, the US Department of Agriculture hardly
improved the mood by cutting its outline forecast for US corn prices in 2013-14
by $0.60 a bushel to $4.80 a bushel – a level not seen in the Chicago futures
market since October 2010.

It would also represent a slump of one-third on estimated average
2012-13 prices.

Benson Quinn Commodities said: "Corn is struggling and remains
lower with market trading 2013-14 record production and a lack of export demand
for old crop," which remains unpopular in export markets.

Ethanol revival

As with wheat, there was some news for corn bulls to clutch
on to, this time from the domestic market, and a further recovery in production
of ethanol, which in the US is made from corn.

US ethanol output last week rose by 8,000 barrels a day to
an average of 797,000 barrels a day, getting back within range of levels needed
to meet USDA forecasts for the whole of 2012-13, and hardening ideas of better
margins, which are bringing many mothballed plants back online.

"I would have thought that was a positive number, but that's
not how the market seems to see it," Mr Cekander said.

Chicago corn for March ended down 1.4% at $6.90 ¾ a bushel, the
lowest close for a spot contract since early January.

Big Chinese purhases?

It needed a strong story to lift an agricultural commodity above
the fray, which soybeans had in the continuing
talk of strong Chinese demand, at a time when harvest delays and infrastructure
hiccups, besides a strike threat, have prevented them meeting their appetite in
Brazil.

"Talk continues to circulate that China has purchased
five-to-10 cargoes of soybeans since their return from holiday," Paul Georgy at
broker Allendale said.

Furthermore, with ideas of the Argentine crop from, for
example Lanworth, now spilling below 50m tonnes, Argentina's prospects for
easing tight world supplies look a little less upbeat too.

Soybeans for March closed 0.3% higher at $14.87 ¾ a bushel,
with the better-traded May lot up 0.1% at $14.70 ½ a bushel.

'Harmattan winds are
weakening'

Among soft commodities, New York arabica coffee futures also showed some resistance, closing up 0.1%
at 141.75 cents a pound for May delivery to distance themselves a little
further from the two-year low reached on Tuesday, encouraged by a touch of
short-covering.

And New York cocoa
for May added 1.0% to $2,133 a tonne, although only after setting a seven-month
low of $2,102 a tonne, undermined by fears of West African selling lying ahead.

Rains in West Africa too pressed on prices early on.

"With rains increasing, Harmattan winds are weakening and
should have little impact on the cocoa crop," weather service MDA said.

"Showers are expected to remain more widespread through the
next week, seen mainly in southern areas."

Downbeat data

However, raw sugar
for March closed down 1.3% at 18.12 cents a pound, and the May lot by 1.2%
to 17.90 cents a pound, undermined by an International Sugar Organization
assertion that pressure on prices is here to stay until at least late this
year.

The ISO also raised above 8m tonnes its estimate for the
world sugar surplus in 2012-13.

New York cotton
for May, having hit a nine-month high in the last session, dropped 1.5% to
83.23 cents a pound, undermined by USDA estimates for the 2013 US crop.

While the USDA saw upland cotton sowings tumbling by 19.0%
to 9.8m acres, this was far higher than the 9.3m acres forecast in the outline
estimates released earlier this month.